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Time Warner in AOL settlement
Company sets $210M pact with Justice Department, proposes $300M deal with SEC.
December 15, 2004: 5:54 PM EST

NEW YORK (CNN) - Time Warner said Wednesday it reached a $210 million settlement of accounting fraud charges brought by the Justice Department and had proposed a related $300 million settlement with securities regulators.

In settling a Department of Justice investigation, the world's largest media company agreed to pay a $60 million fine and set up a $150 million fund to pay for pending shareholder lawsuits stemming from the underlying charges against its AOL Internet unit.

The world's biggest media company also agreed to hire an independent monitor who will review AOL's accounting.

The Justice Department settlement, however, leaves open the possibility that charges could be renewed. The agency has filed against AOL a criminal complaint which it has agreed not to pursue and will dismiss in two years if AOL has complied with the settlement terms.

"If AOL fails to comply with the agreement, the deal is off and they are in a world of trouble," said Deputy Attorney General James Comey during a press conference announcing the deal.

In addition to the settlement with the Justice Department, Time Warner said a separate $300 million settlement with the Securities and Exchange Commission was awaiting final approval by the agency. A company statement said SEC staffers would recommend that proposal to the commission.

Together, the agreements announced Wednesday are worth $510 million.

The settlements center on alleged accounting irregularities that date to 1999, before Time Warner acquired AOL. The Justice Department and SEC focused on different conduct, but both were investigating charges that America Online, as the Internet company was then known, used accounting gimmickry to inflate its growth.

The government probes, launched in 2002, have weighed down the company's stock and hindered its ability to acquire other companies.

Putting the accounting charges behind it now was crucial for Time Warner.

Time Warner shares hit a 52-week high Wednesday.  
Time Warner shares hit a 52-week high Wednesday.

Company executives are planning to bid with Comcast Corporation (Research) early next year for the assets of Adelphia Communications, the country's No. 5 cable operator, which is now in bankruptcy. Last year Time Warner cited the government investigations when it called off an initial public offering of its Time Warner Cable division.

In November, Time Warner announced it had set aside $500 million to end the government inquiries.

Time Warner CEO Richard Parsons said the settlement with the Justice Department allows the media giant -- the parent company of CNN -- to "move forward with renewed confidence in the future."

"While there are still challenges ahead, the steps we announced today will help to remove a cloud that has been hanging over the company for some time now," Parsons said in a statement issued Wednesday afternoon.

The Justice Department, in its criminal complaint, accused AOL, which merged with Time Warner in 2001, of aiding and abetting securities fraud. In addition, four executives of a now-bankrupt Internet start-up have agreed to plead guilty to federal charges stemming from its transactions with AOL, Comey said.

No AOL employees were named in the complaint, but Comey said the investigation was continuing.

Las Vegas-based PurchasePro, the start-up named in the AOL complaint, sold software that could be used to handle transactions through AOL's Netscape NetBusiness portal. AOL and PurchasePro struck a $70 million deal in 2000 to build a business-to-business Internet sales platform, Comey said.

"As so often happened during the dotcom bubble days, the revenues that AOL and PurchasePro were counting on did not materialize," he said. "And instead of confronting that harsh reality, AOL and PurchasePro cooked up a scheme to inflate PurchasePro's revenues."

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As part of the settlement, Time Warner has acknowledged that its employees engaged in criminal conduct. The company still faces lawsuits from shareholders.

After rising early Wednesday on news reports of a settlement, Time Warner (unchanged at $19.38, Research) stock closed unchanged at $19.38 in New York Stock Exchange trading. The company is the parent of CNN and CNN/Money.  Top of page

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